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Closely Held Insurance Company- Captive Insurance

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Closely Held Insurance Company- Captive Insurance

 

A Closely Held Insurance Company or Captive Insurance Company – which is an insurance company affiliated with an operating business entity -- is typically formed to provide insurance to the business as a supplement to its commercial coverage. For more than 50 years, large U.S. corporations have utilized captive insurance companies to obtain better rates on reinsurance, to allow coverage of risks not easily available (or not available) at a reasonable price on the commercial market, or to replace commercial insurance coverage. It has been estimated that at least 80% of Fortune 500 companies operate one or more captive insurance companies. One of the successful results of captives has been the reduced loss ratios experienced by the businesses as a result of improved risk management practices. When a business manager realizes that fewer losses translate into an improved bottom line for the corporate group, better risk management tends to follow. In the case of commercial policies with few claims and losses experienced over many years, the benefit of substituting captive policies is not so much a further reduction of losses as the capturing of underwriting profits that would otherwise have been paid to the commercial insurer. Large captives have also enjoyed income tax benefits, primarily through the deferral achieved by the creation of loss reserves.

 

 

 

 

 

 

 

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